Consequences of economic intervention

California's Assembly recently voted to increase the state's minimum wage from $8.00 to $9.25 in phases by 2016 and to then tie future increases to the rate of inflation. Given the Democratic supermajority ruling the state, the minimum wage hike has a pretty good chance to become law, though the state's latest attempts to ban plastic shopping bags and limit fracking were defeated, so it's not a sure thing.

The minimum wage bill's sponsor, Assemblyman Luis Alejo, D-Salinas, explained why he feels the state must act: “The last time the minimum wage was increased, gas was $3.25 a gallon in California,” Alejo said. “I don't know about you, but I haven't seen gas prices at that level in a long time.”

And maybe he never will, given that California has the highest gas taxes in the country and will be sticking drivers with another 3.5-cent-per-gallon increase come July. It's quite remarkable how oblivious Alejo is about the reason why gasoline is so expensive in this state. Including the looming 3.5 cent boost, the California Tax Foundation reports, “California's combined local, state and federal gasoline taxes total 70.6 cents per gallon, the highest in the nation.”

Given that gas station employees likely fall on the low end of the wage spectrum, he might well make it even more expensive.

Plenty of economically savvy folks have previously written in the Register about how minimum wage increases actually kill low-wage jobs. But there's an additional potential economic harm hidden in California's employment laws when it comes to salaried employees. In California, in order to classify an employee as an “exempt” salaried worker (exempt from the state's rather inflexible overtime laws and other officious monitoring rules) that employee must earn at least twice the minimum wage, among other requirements.

If this minimum wage increase and reaches its maximum in 2016, employers will have to pay salaried workers at least $18.50 an hour in order to exempt them from the tiresome wage-slave laws and grant some flexibility.

This higher minimum wage isn't the only requirement in California that must be met to place an employee on salary and exempt him or her from overtime laws, but it's a helpful reminder of how much meddling the state has inflicted in the operation of commerce. These legislators have very little understanding of how the market or economy works. They see businesses leaving the state and probably assume they're all greedy. They do not grasp how this regulatory atmosphere makes it such a challenge to run a business in California without the assistance of compliance officers.

Alejo is far from alone in his lack of grasp of the less-obvious consequences of the state's intervention in the economy. A quick online search will tell him where he could find gas at $3.25 or cheaper – Texas.

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